New House-Price Data Belie Bubble Theories

September 6, 2002

WASHINGTON - Average U.S. home prices increased by 6.48 percent in the second quarter of 2002 on a year-over-year basis, according to the House Price Index released this week by the Office of Federal Housing Enterprise Oversight (OFHEO). This strong performance continued a pattern of gradual deceleration from the cyclical peak of 9.17 percent in the first quarter of 2001, just before the onset of economic recession.

"The OFHEO report belies recent media reports of alleged house price bubbles that are forming or about to burst," said Gary Garczynski, president of the National Association of Home Builders (NAHB) and a builder/developer from Woodbridge, Va. "It indicates that home values have continued to improve at an historically healthy rate, but with some gradual and expected braking from the exceptionally strong pace at which they were gaining in the beginning of last year. There has been no dramatic slowdown, nor is there likely to be."

The House Price Index, based on repeat-sales or refinancings of mortgages purchased or securitized by Fannie Mae and Freddie Mac, is the most comprehensive and reliable measure of house price changes available from private or government sources. The second-quarter report showed that none of the nine Census Divisions, and none of the states, experienced house price declines on a year-over-year basis. Furthermore, price declines were detected in only one of the 185 metropolitan areas ranked by OFHEO. The exception to the rule was San Jose, California.

"The ongoing strength of house prices during a period of slack economic activity bodes well for the future," said Garczynski. "Even if interest rates firm up as the recovery proceeds, associated gains in household income and employment will support housing demand and house prices in the period ahead."

NAHB is expecting house price appreciation to stabilize in the 4 to 5 percent range before long, and yesterday's report from OFHEO is consistent with that forecast.

Source: National Association of Home Builders

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